Clipp, Inc., earns book net income before tax of $600,000. Clipp puts into service a depreciable asset this year, and its first-year tax depreciation exceeds book depreciation by $120,000. Clipp has recorded no other temporary or permanent book-tax differences. Assuming that the U.S. tax rate is 21%, what is Clipp's deferred income tax liability reported on its GAAP financial statements?
A) $151,200
B) $126,000
C) $100,800
D) $25,200

Question

Quizplus · Accepted Answer

The deferred income tax liability is calculated as the difference between the tax depreciation and the book depreciation, multiplied by the tax rate. Here, it's $120,000 * 21% = $25,200.